Thai corporate-governance reforms: Real or just a show?

Warapatr Todhanakasem, President, Thai Rating and Information Services Co, Ltd., The Nation, Asia News Network, Bangkok

Since the Asian financial crisis in 1997, foreign investors have been demanding better corporate governance from Asian companies as a precondition for their investment decisions.

The International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) have also pressured Asian companies to improve their governance practices. In Thailand the government recently launched a corporate-governance campaign.

Is this heightened interest in corporate governance in Asia for real?

When corporate governance caught wider interest in late 1997, the first problem was what to call it in Thai. Now we have at least five Thai terms to describe corporate governance. Many Asian countries must have faced a similar problem, because the concept is Western-rooted.

Apart from a name, a more important aspect was its meaning. Even today, many in management discipline have different ideas about what the terms vision, mission, strategy and tactics mean. I would rather focus on the implementation of, progress in, and impediments to corporate governance in Thailand.

We now move to something more tangible -- the audit committee. This is the very first committee within corporate-governance framework that was introduced in Thailand. In January 1998, six months after the crisis hit Thailand, the SET required all newly listed companies to appoint audit committees. The 400 or so already-listed companies were allowed until end 1999 to appoint audit committees.

However, the problem was getting qualified directors for the audit committee. Before they could be asked to join the committee several potentially qualified directors resigned out of fear of potential liability that would come with the position.

The next hurdle was how to get to work. It took several months, for some even a year or so, before these committees got under way. Nowadays the quality of their work differs significantly, depending largely on the qualifications and devotion of the committee chairpersons.

Thai companies have come to realize that it costs more to practice good governance. They have to pay more for directors who sit on their audit committees. Some companies are also concerned that they may expose trade information to competitors.

All of a sudden, with the concept of good corporate governance, the decades-old practice of directorship is said to be unproductive and undesirable. Investors, regulators, bankers and other stakeholders are suddenly expecting a great deal more from Thai corporate directors. The problem now is: "How are we going to get directors who are qualified and able to meet new expectations?"

By training new directors and retraining old-timers we will hopefully be able to upgrade the quality of corporate directors.

Like other Asians. Thai people's respect for seniors is deep- rooted. The board chairman is typically a senior person. Unless he encourages free-flowing and frank dialog among board members and between board members and the CEO, challenging questions may not be raised.

Yet it is quite encouraging that the new corporate-governance culture is being formed in various Thai boardrooms and has found considerable initial acceptance.

It is rather difficult to say whether this good-governance bandwagon will stick. My assessment is that Thailand's efforts over the past four years are real. Whether or when these efforts will produce meaningful results is a more difficult question to address. Now, if a businessman wants to be a good corporate citizen he must be able to say that his company complies with corporate-governance principles. This is a sign at least of acceptance of the concepts.

Still, how real are the reforms? Could Thai companies be rated on governance? The rating idea has been floated over the past few years, but nothing has materialized. One problem is that it would cost companies money to get a rating. Companies may also shy away if they feel that their ratings may be low.

The year 2002 has been declared the year of good corporate governance. The Thai Rating and Information Services has been commissioned by the Securities and Exchange Commission (SEC) to rate companies' governance practices. Companies that get a high rating will be given incentives from the SEC -- fee waivers, fast-track filing and public commendations.

I have seen a continuous, integrated effort in the public, private and political sectors. Governance, however, will only improve only on the basis substance, not form.

Thai, and probably most Asian, corporate thinkers and practitioners have only just come to grips with the basic concept of good governance. We naturally tend to look to the Western and American models for clues. However, we have been shocked by the collapse of Enron. How could this corporate scandal happen in the country that created the corporate-governance model? Enron is the biggest bankruptcy in history, and it will not be the last bankruptcy in America caused by bad governance. What hope do disciples of governance in Asia have now?

We cannot lose hope. If we are discouraged and feel that nothing much can be done, then we are giving these people even more opportunities to make the business community uglier.

The fact that the good people tend to outnumber the bad in our society is a blessing. Today's good guys, however, are not always free from temptation if and when the opportunity to corrupt opens up. As a Buddhist, my only offering is a Buddhist teaching that says happiness is when one feels one has enough. Then the temptation to stray from the right path will not harm one.

But "enough" is a relative term. After all is said about corporate governance, it probably boils down to just one thing: The virtue of human integrity -- which unfortunately can differ significantly from one person to the next. Raising the overall level of professional integrity remains a challenge for us all.